During his state budget address Wednesday, Gov. Pat Quinn said he wants to keep in place Illinois' temporary income tax hike that is set to expire in January. Progress Illinois takes a closer look at the governor's proposal and offers some expert reaction to Quinn's election-year budget speech.
After months of being mum on the issue, Gov. Pat Quinn used his budget address Wednesday to announce his desire to keep the state's temporary income tax hike in place — an idea many Republicans and business groups oppose.
The Chicago Democrat, who is up for re-election this year and faces what is expected to be an intense battle against Republican venture capitalist Bruce Rauner, made the call to maintain current income tax rates as he released his 2015 budget proposal along with a five-year fiscal blueprint that he says "will secure Illinois' long-term financial future.”
"You've got to give the governor kudos for having the political courage ... to put the tax issue front and center in an election year when he knows his opponent is going to be screaming from the rafters the opposite message," said Ralph Martire, executive director of the Center for Tax and Budget Accountability. "(Quinn is) telling voters, frankly, what they need to hear, not necessarily what they want to hear, and you always have to respect someone who's willing to do that."
John Jackson, visiting professor at the Paul Simon Public Policy Institute, said Quinn's state budget address for the 2015 fiscal year, which starts July 1, framed the governor's race pretty clearly. Rauner, who did not attend the governor's budget speech in Springfield, wants the higher income tax rates to expire at the end of the year.
"Clearly, there is a stark difference here, and it's the difference you would expect between Republicans and Democrats," Jackson said. "Pat Quinn, again, reminded people of why he's a Democrat and what Democrats usually propose. Republican leadership, I think, pretty clearly toed the usual Republican line on being opposed to taxes."
Unless state lawmakers take action, the state's personal income tax is set to rollback from its current 5 percent to 3.75 percent, and the corporate income tax will drop from 7 percent to 5.25 percent. The administration estimates a $1.9 billion deficit in the state's operating fund next budget year if the higher income tax rates expire.
Quinn used his budget speech to spell out what the state's fiscal picture would look like if state revenue is not stabilized.
"Extreme and radical cuts will be imposed on education and critical public services," the governor stressed. "Cuts that will starve our schools and result in mass teacher layoffs, larger class sizes and higher property taxes."
He rattled off a number of specific looming consequences: 13,000 teachers laid off; 3,700 rape victims left without proper care; and 41,000 fewer kids in child care, to name a few.
"If those [income tax] rates are allowed to simply phase down and nothing new is put in to replace them from a revenue standpoint, then frankly we are going to have to eviscerate primarily education and social services," Martire noted, adding that he thinks the governor actually understated the impacts of the cuts.
Maintaining current income tax rates, Quinn said, also leaves room for a proposed $500 property tax refund each year for individual homeowners, which the governor called the "most significant property tax relief in state history."
"Illinois has one of the highest property tax burdens on homeowners in the nation —more than 20 percent above the national average," the governor said while discussing his proposed property tax refund. "The property tax is not based on ability to pay. The property tax is a complicated, unfair tax hitting middle-class families the hardest."
But David Merriman, associate director of the University of Illinois’ Institute of Government and Public Affairs, noted that the governor's proposed property tax credit does not appear to benefit renters, who pay property taxes indirectly and tend to be lower-income individuals.
"If we're going to have a property tax credit, it seems that it would be appropriate to extend it to those renters and homeowners," he argued.
The governor also called for a $6 billion increase in classroom spending over the next five years and a $1.5 billion investment in the Birth to Five initiative, which he announced earlier this year during his State of the State address. Under Quinn's five-year blueprint, the state's Monetary Award Program, or MAP, which helps low-income Illinois college students get scholarships, would see its funding doubled. The governor's 2015 spending proposal specifically includes a $50 million MAP investment.
Meanwhile, the governor wants new tax cuts for businesses that offer job training. He has also proposed a bipartisan working group tasked with creating a new, five-year capital plan to piggyback on the success of the Illinois Jobs Now! program. And over the next five years, the value of the Earned Income Tax Credit would be doubled under the governor's budget plan.
The Illinois Coalition for Immigrant and Refugee Rights was pleased to see the governor maintain $6.7 million in funding next year for the Immigrant Services Line Item, which funds various programs for immigrant families. The coalition also applauded the governor for keeping the $1 million spending level intact for the Parent Mentor Program as part of the Illinois State Board of Education budget.
The Parent Mentor Program funds "enable more than 400 parents, mostly low-income, immigrant women, to support 400 teachers on a daily basis and improve academic achievement for up to 10,000 students in low-income schools," the coalition said in a statement. "We urge the General Assembly to follow Governor Quinn’s lead and maintain funding for the Immigrant Services Line Item and the Parent Mentor Program. These programs are crucial to the growth and prosperity of our immigrant communities."
During his speech, Quinn touted the more than $5.7 billion that has been slashed from the budget since he took office in 2010 and other efforts that have helped restore Illinois' fiscal stability, including the controversial pension overhaul measure the governor signed into law in December.
"We also did the hard things to drive down the cost of operating state government," Quinn added. "We closed and consolidated more than 50 state facilities. We overhauled our Medicaid program, rooting out waste, fraud and abuse. We made hard choices to reduce Medicaid spending. We reformed our worker’s compensation system."
Even still, the state continues to grapple with a number of major fiscal issues, including an unpaid bill backlog estimated to shoot up to $7.5 billion by the end 2015 and the lowest credit rating in the country. And the fate of the contentious pension reform measure — designed to help tackle the state's worst-in-the-nation $100 billion pension debt — is still up in the air pending the outcome of various legal challenges from labor unions and state workers.
But Merriman said he believes the state has made substantial fiscal progress in recent years.
"Of course, one of the major fiscal efforts was the pension modifications, obviously not everyone would consider that progress," he said. "I think the governor was justified in claiming some credit for fiscal changes that have been made ... A lot of this stuff has been very painful, but Illinois is definitely inviting moving towards budget balance."
In a statement, State Senator Kwame Raoul (D-Chicago) acknowledged that the state's "fiscal reality is still bleak."
"The problems are decades in the making, the result of a structural deficit that will require creativity and courage to overcome. I applaud the governor for boldly initiating an honest dialogue, and I join him in committing to tell the truth to the people of Illinois, even when that truth is unpopular or unpleasant," the state senator said.
"We owe the people of this state the courtesy of carefully examining all responsible alternatives and pursuing policies that are progressive, not regressive, improving quality of life for our neighbors rather than exacerbating the gap between rich and poor in our society," Raoul added. "And we owe the children of this state a well-funded education system that allows them to go as far as their dreams and determination lead them. In the coming days and weeks, I will study the governor’s plan and other proposals in greater detail. I am ready to work with anyone who comes to the table with real solutions, ready to set aside preexisting agendas to build a better future for our state."
Meanwhile, Quinn did not propose changing Illinois' current income tax structure from a flat one to a more progressive one.
"If I were in charge, or if there were an opportunity to push the governor in a certain direction, what I would suggest is that he support a fair tax," Martire said. "It's the right thing to do, and if we did that, the governor's concerns about regressivity, which he mentioned more than once in his speech today, would be addressed. You can raise revenue from people who would really afford to pay more ... and reduce the taxes on low- and moderate-income families that are struggling to get by, and raise at least as much revenue as the current flat tax does, but I would suggest more."
Kristen Crowell, campaign director for A Better Illinois, which is pushing for a fair tax structure in the state, also weighed in on the governor's speech. She issued this statement:
We applaud the Governor for addressing head-on the fiscal cliff and draconian cuts that would have a devastating impact on our schools, public safety, health and human services, and other key priorities that are unacceptable to the people of Illinois and would impact nearly every citizen in the state, along with our state's fragile economy.
We continue to believe the best long-term option is a Fair Tax, with lower rates for lower incomes and higher rates for higher incomes, that would generate the revenue to avoid those draconian cuts, eliminate the state's antiquated and regressive flat tax, and provide tax relief to 94% of Illinois citizens.
Getting a progressive income tax in Illinois is expected to be a tough fight, especially at a time when keeping current income tax rates in place is already a hard sell.
According to a new poll released this week from the Paul Simon Public Policy Institute, 60.3 percent of registered Illinois voters oppose making the temporary tax increase permanent, while just 26.5 percent favor the idea. And 52.3 percent of respondents said they support cutting government waste and inefficiency over increasing revenues, though 28.9 percent said they favored a combination of both approaches. (The statewide telephone poll of 1001 registered voters was conducted February 12 to February 25. It has a margin of error of plus or minus 3.5 percentage points).
Keeping the temporary income tax hike in place is going to be hard politically, Jackson said, adding that it "takes a certain amount of political courage from Pat Quinn to get out front of public opinion."
Business groups appear to be unhappy about the governor's income tax proposal. Rob Karr, president and CEO of the Illinois Retail Merchants Association, issued the following statement in response to Quinn's budget address:
Given the increased costs to Illinois employers that Governor Quinn is promoting - issues like paid sick leave and increasing the minimum wage - it becomes very difficult for employers to continue to afford to pay at the existing income tax rates. The combined weight of these issues is negatively impacting Illinois' economic recovery. IRMA appreciates the budgetary pressures facing Governor Quinn and the even higher financial hurdle if the temporary income tax is not made permanent. We commend the Governor for his efforts in this regard. However, we would like to see a more balanced approach that avoids imposing additional cost pressures on Illinois employers and promotes more aggressive spending control measures by the state. Employers cannot afford both the highest minimum wage in the Midwest and high tax rates.
The Koch brothers-funded Americans for Prosperity, a conservative political advocacy group, also bashed the governor's budget blueprint. Americans for Prosperity's Illinois State Director David From issued this statement:
Last month, Governor Quinn used his State of the State Address to declare ‘Illinois is making a comeback.’ Since that time, our unemployment worsened, returning the second-worst in the nation.
In today’s Budget Address, Gov. Quinn unveiled a five-year “budget blueprint” that would make the temporary tax hike permanent, rather than championing policies which would improve the fiscal, job & business climate in the Land of Lincoln. The governor’s proposals will cost many Illinois families and businesses more money and drive jobs from Illinois. After he raised taxes last time, Illinois' unemployment spiked. That is not a trend we want to see repeated.
Unfortunately, the governor today declared his support for more government and spending rather than more jobs and spending reform.
The governor stressed that he is not looking to impose any "new, unfair taxes" on services, families and small businesses. He also ruled out a tax retirement income and will not "underfund our schools and shift more of the property tax burden onto homeowners in local school districts."
But Jackson said he was disappointed that Quinn did not suggest broadening the state's tax on services.
"I have long been in favor of looking at the wide range of services that other states tax," he said. "There's 168 different service taxes in the 50 states, we only take 17 of those categories. If you're going to look at revising the tax code, that's one of the most obvious places."
Merriman echoed similar sentiments.
"If we extended the sales tax to services, that would actually help low-income folks," who usually do not spend a large chunk of their budget on services, he said.
"It's high-income individuals who spend a larger share of their income on services, and if anything, it would help the tax system [move] a little bit more towards fairness, and certainly, I think, more towards efficiency in the economy," Merriman stressed.
Martire added that "taking the sales tax base expansion off the table just makes no fiscal sense."
"We'll never have a balanced budget if in fact we don't expand our sales tax base to include services," he said. "And while that would be moderately regressive ... you can offset that regressivity if you had a fair income tax."
In his speech, Quinn did not mention House Speaker Michael Madigan's recent proposed constitutional amendment that seeks to raise the state's income tax for people earning more than $1 million annually. All income over $1 million would be taxed by 3 percentage points, which is estimated to bring in an extra $1 billion for schools each year.
The Chicago Teachers Union, which supports Maidgan's proposal, issued the following statement in response to Quinn's budget address:
As has been made clear in Illinois and across the country, state and local governments are suffering not from an epidemic of wasteful spending but rather a severe revenue crunch. Budgets are statements of priorities, and revenue has been too low a priority in this state for far too long. We applaud Governor Pat Quinn for recognizing the importance of additional revenue for schools and human services. At the same time, if we are to develop the schools all our students deserve, maintenance of current funding levels is insufficient, especially when the method by which revenue is generated continues to disproportionately impact working families across the state.
We support House Speaker Michael Madigan’s constitutional proposal for a surcharge on millionaires to fund education, and we view it as an important first step. We continue to support a Fair Tax that can provide the revenue necessary to support education beyond the significantly slashed, pro-rated state funding levels of the last several years.
It is impossible to have the robust public services on which millions depend and from which all Illinois residents benefit without appropriating sufficient money to fund them. It is therefore crucial that deep cuts to schools and human services be restored. We appreciate the governor’s rejection of austerity, but his address is painfully scant on details related to how these cuts will be addressed. Returning investment in education to the “highest level in the last five years” only returns spending to FY2008 levels and does not change the trajectory of state spending to the level needed for all children to access a quality education--nor does the restoration of funding address the dramatic inequality in funding across the state’s school districts.
While we appreciate the emphasis on early childhood education, the “landmark” education reform and pension reform the governor touted as benefits instead create perverse incentives to push out talented and dedicated career-long teachers, which negatively impacts our students’ learning opportunities.
More than 50,000 students across Illinois are homeless, and concentrated poverty ensures that our education system will continue on a two-tracked path, but the governor did not mention how we should address these issues. Furthermore, the governor did not explain how crucial human services cuts like the closure of mental health clinics or slashing programs for people with disabilities, both of which have a major impact on school outcomes, would be funded at appropriate levels. We will closely monitor budget proposals in these areas to ensure that those who have suffered most from budget cuts will not continue to bail out the rest of the state.
Absent from this address, but vitally important for better education outcomes, is an increase in the minimum wage. No person who works full-time should make a poverty wage, and students who have more stability at home are more prepared for school. We call on the governor and the legislature to increase the minimum wage this session.
The state’s approach to education needs to go beyond talk and to action. Action starts with the state’s prime policy document, but the budget details here are just a start.
The state legislature has until the end of May to approve a fiscal year 2015 budget.
Image: AP Photo/Seth Perlman